Depending on the type of cost, there are two different fundamental approaches to Cost Forecasting. The differences between those two approaches, where they do apply and where they cannot apply, need to be fully understood by Project Managers and Cost Controllers. In our new White Paper 2014-07 we expose what are these two approaches, what are they main characteristics, and how best to use them.

The two fundamental forecasting approaches that are applicable to different types of costs are:

• An approach based on Commitment / Yet-to-Commit for external costs related to numerous small purchases of standard equipment such as bulk piping, steelwork, electrical equipment, etc.;
• An approach based on Estimate to Complete derivation from productivity data (Earned Value) for internal costs (engineering) or external costs such as services, subcontracts, fabrication, complex procurement, etc.

Unfortunately depending on their history, organizations sometimes tend to use a single approach for all types of costs, which does not work. It is essential to be able to use both methods depending on the type of activity or costs that is involved.

In any case, it is important to understand that the final cost does depend in part on the underlying quantities, but also on softer issues related to contractual issues and other considerations.

Read our new White Paper 2014-07 “What the Two Approaches for Cost Forecasting are, and When to Use Them” to understand in detail these two types of forecasting and what are the main traps to avoid!